Motivation & structure of paper SDGs phrased in exhortational - PowerPoint PPT Presentation

Eradicating Poverty by 2030 : Implications for income inequality, population policies, food prices ( and faster growth? ) Giovanni Andrea Cornia University of Florence and CDP ------------------------------------------------------------- UNU-WIDER 2018 Development Conference, Helsinki, 13-09-2018

Motivation & structure of paper SDGs phrased in exhortational terms, vague on econ polic. Is SDG1=0 by 2030 consistent with long term trends in its ‘ immediate determinants ’(GDPg.r., pop g.r. Gini, FPIs/CPI)? To answer, develop/simulate simple comparative staticmodel Simulate (i) GDP growth, (ii) GDP growth + improvments in pop policies, inequality, food prices. Improvements are observed‘best performances.over 1985 -15 Concl.: many SSA & couple LA countries do not make it due to low IMF projected GDP g.r. even if extra 1% growth added Make policy suggest. on ineq, pop growth, food prices’ and how to trigger faster growth

Evolution of measurement of ‘immediate determinants’of PHR + - +/- (1) D H/H -1 = f [ D z/z -1 , D Yc/Yc -1 , IT] (ineq is assumed constant) + - + +/- (2) D H/H -1 = f [ D z/z -1 , D Yc/Yc -1 , D Gini/Gini -1 , IT ] (ineq. varies) + - + + +/- (3) D H/H -1 = f [ D z/z -1 , D Y/Y -1 , n, D Gini/Gini -1 , IT ] (makes n expl) + - + + + +/- (4) D H/H -1 =f[ D z/z -1 , D Y/Y -1 , n, D Gini/Gini -1 , D Gini( if FPI/CPI >1.25% , IT]

Graphical decomposition of PHR change in ‘ growth effect ’ & ‘ ineq. effect ’

In explicit linear terms - and assuming D z/z -1 and IT = 0, (4) becomes D H/H -1 =- a D Y/Y -1 + a n + bD Gini/Gini -1 + w Gini ( if FPI/CPI rise > 25%) ] * where a, b are the poverty alleviation e of growth & Gini, & w = b an empirical scalar raising Gini by 2 pts in 2030 if FPI/CPI rise > 25% *a, b are taken from Son- Kakwani’s work on smooth theoretical distributions. They vary (a lot) in relation to Gini & z/Yc (the ratio of the poverty line z and average GDP/c)

PHR elasticity in relation to a 1 % change in growth rate of GDP/c & Gini Poverty Elasticity of growth Poverty Elasticity of inequality a = [ D PHR/PHR -1 ] / [ D Y/Y b = [ D PHR/PHR -1 ] / [ D Gini/Gini -1 ] -1 ] 0.3 0.4 0.5 0.6 0.3 0.4 0.5 0.6 Gini z/Yc 0.33 -3.9 -2.1 -1.3 -0.8 5.2 3.3 2.4 2.0 0.50 -2.8 -1.6 -1.0 -0.7 2.5 1.7 1.3 1.2 0.67 - 0.8 -0.5 1.2 0.9 0.8 -2.0 -1.2 0.8 1.00 0.2 0.2 0.3 0.4 -1.2 -0.8 - 0.5 -0.4

Data used for the simulations • Trends in GDP Growth/c. IMF-WEO 2017 presents such real data for 78 developing countries (with H > 0 in 2013) over 1999- 16 + projections 2017-22 that I extended to 2030 at same rate. • Data show rapid expansion of Asia (8 % yr). • LA grew 3.3 % till 2008 but growth was zero or negative in 2015-6. • MENA 5.3% & SSA grew at 5.6 % over 1999-2008, but also here growth fell by 2-3 pts due to fall in commodity prices. • Based on such trends, the WEO 2017 projects average 2017-22 regional GDP real growth of • 2 % for Latin America, • 3.3 % for SSA and MENA (includes Pakistan & Afghanistan), • 2.1 %for the CIS countries • Sustained 6.4 % for the emerging & developing countries of Asia.

‘continued • Poverty line: 1.90 $ a day in 2011 PPP$ • WB data on 2013 incidence of poverty • Gini data : income ineq data from Global Consumption and Income Project (GCIP). Produces standardized income Gini for 133 countries 1960-12. Ensures comparability across time/space • Such standardization entails considerable differences btw GCIP & WIDERs WIID data. → Slower achievement of SDG1 • Pop data: Medium variant Population Prospects 2017 UNPOPDIV • FPI/CPI: use study Cornia-Martorano (2016) on relation btw changes in FPI/CPI for 18 SSA countries 2000-8 (next page).

Average regional decline (7.8 pts over 2002-2015) of Gini coeff. of income ineq, L.A. early 1980s -2015 54.1 54.0 Argentina, Bolivia, Brazil, etc experienced Gini drops of 11-12 pts over 2002-2015 52.0 51.1 50.0 48.9 49.2 48.0 47.9 47.3 46.3 46.0 early 1980s 1990 1995 2000 2005 2009 2013 2014 2015

Growth rate of population in % depends on TFR & pop. momemtum (% women of fertile age in tot fem pop)

Total fertility rates in SSA vs other regions TOTAL FERTILITY RATE TOTAL FERTILITY RATE 9.00 9.00 8.50 8.50 8.00 8.00 7.50 7.50 7.00 7.00 6.50 6.50 6.00 6.00 5.50 5.50 5.00 5.00 4.50 4.50 4.00 4.00 Sub-Saharan Africa Niger Nigeria Sub-Saharan Africa Ethiopia Rwanda

continued FPI/CPI First difference in FPI/CPI ratio (x axis) vs Gini (y axis)

Simulated improvement in SDG1 immediate determinants • Elasticies taken initially as constant – then endogenized • GDP growth: IMF WEO. Then add additional 1% growth • For the rest simulate for all ‘best hystorical performances’ observed during the last 3 decades, i.e. • Gini drop of 20% (50% more than Brazil 1998-15) • Population growth slower than 13% than projected by UNPop Div medium variant to 2030 (China last 30 yrs) • FPI/CPI: assume no change or FPI/CPI=1.25 by 2030

Simulation of stepwise results

Commenting the results - IMF(pessimistic?)projected GDP g.r. for SSA/LA reduce n. countries exiting poverty by 2030 by only 14 over 78 - 13% slower increase in pop growth by 2030 in relation to medium variant has negligible effect as this projects huge pop increase in SSA. Pop policy to be kept in place there for 2 or more generations - A 20% Gini decline in relation to 2013 level (as in Brazil over 1998-2012) has visible effect (13 countries exit poverty) . Still 50/78 do not make it

Commenting the results - Similar effect observed with endogenization of a and b, yet 37 countries of 78 do not hit SDG1 - Setting FPI/CPI = 1 also extracts another 8 countries from poverty (as Gini falls by another 2 pts) – still 28 do not hit SDG1 (19 SSA, 5 LA) - For them GDP low g.r. projected by IMF (2% in LA, 3.1% in SSA- where pop growth is 2.7 %) - In these regions hitting SDG1 requires growth acceleration …..

Commenting the results - Can GDP growth acceleration be a solution? Yes in SSA/ LA - For instance with a simulated +1% rise in GDP g. r. above IMF projections, the N of countries not hitting SDG1 falls to 14 (11 from SSA). - But how to promote faster growth in globalized unstable economy with re-primirezed dependent economy syndrome ? - Need to revist growth paradigms, no maximalism – but redefine some rules

Policies to cut Gini & speed up growth • Broad agreement on social /sectoral policies – lack of agreement on economic paradigm. • (i) Pre-market shifts in path-dependent social norms • election of inclusive regimes , • new political coalitions , • affirmative action (‘ quotas’ ‘reservations’ ), • universal-compulsory-free education for all , • Peace Reconciliation Commissions (South Africa), • promotion of MDG-SDGs (in culturally globalized world)

Continued • (ii) Changes in primary distribution of income via asset redistribution (land, physical, financial & human capital) • (iii) improve functioning of dualistic factor mkts that affects the level of skilled & unskilled wages, land rents, and interest rates. For example: - develop cadaster & land registration – improve access to credit, – if chronic ‘surplus labor’, use active/passive policies to soak it up through public works, etc

(iii) Macro policies • distribution-sensitive macro-policies : • (countercyclical fiscal-monetary policy, active tax policy, low real i.r. • Key is choice of the exchange rate -affects massively the distribution of income. No unique solution, but stable SCRER promotes employment in tradeable sector where poor are employed. • complex is choice of trade regime. In SSA/LA decline in tariff rates accompanied by fall of v. a. share of manufacturing. • Should free trade be accompanied by compensation for the losers? Who pays ? Domestically (only in expanding econ..) • Finally, prudential regulation of domestic banks and control of capital account + reserves accumulation) needed to avoid the highly-disequalizing effects of financial crises.

Malawi: tariff rate (left scale) & manufact. v.a. share (right scale) WDI data

Continued • deal also with impact of technological change that raise the skill premium, and raise capital share ( • by increase supply of skilled labor • R&D (public-private sponsored) • economic policies may try to influence the pattern of growth (the sectoral endogenous structure of production) via industrial policies ….

Continued • (iv) Redistributive Policies • human capital • ensure against shocks • reduce poverty for unable to work • To be effective redistributive policies need revenue to fund them. Tax /GDP ratio rose 2-4 pts in SSA-LA. Aid stagnant. • But several countries have tax/GDP ratio below an econometrically determined ‘global norm’ (see figure). • SDG1-compatible policies should therefore focus also on a sustainably higher tax/GDP ratio, progressive direct/ind.taxes, efficient tax admin